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BT (LSE: BT.A) shares have been doing the business lately. They’re up more than 50% over five years and almost 15% over the past 12 months, with dividends on top.
After years of costly distractions and strategic detours, the FTSE 100 telecoms group finally looks to be finding its feet. But can chief executive Allison Kirkby turn that progress into faster dividend growth?
Surprise FTSE 100 turnaround stock
BT has spent years wrestling with huge investment demands, fierce competition and a cumbersome pension scheme. Net debt still stood at £20bn in March, alongside a £4.2bn gross accounting deficit in its pension scheme. An accounting scandal in Italy also led to a £530m charge in 2017, while its expensive push into sports broadcasting proved another distraction.
Kirkby has been simplifying the business, cutting costs and concentrating on its core telecoms operations. Openreach recently passed 23m premises with full-fibre broadband. The expensive construction phase is nearing its peak, creating the prospect of stronger cash generation as investment falls.
BT reported pre-tax profit of £1.44bn in the year to March 2026, up from £1.33bn the previous year. Normalised free cash flow fell 6% to £1.51bn though.
Kirkby is still expecting to generate around £2bn in normalised free cash flow in the current financial year, rising to £3bn by the end of the decade. Job cuts and greater use of AI should help reduce costs, although delivery is far from guaranteed.
What about the dividend?
BT’s dividend has been anything but dependable. It was slashed from 15.4p a share to 7.7p in 2020, then to zero in 2021 before being restored at 7.7p in 2022. Since then, dividend growth has been painfully slow. The full-year dividend reached 8.32p in the year to March 2026. That’s a year-on-year increase of just 2% and still roughly half the 2019 payout.
BT now promises annual dividend growth in the low-to-mid single-digits until its finances meet the metrics associated with a BBB+ credit rating. After that, surplus cash could support enhanced shareholder returns.
Analyst forecasts are more ambitious, pointing to around 9p a share for the 2027 financial year and 11.3p in 2028. At a share price of 211p, that later figure would represent a forward yield of 5.4%. Yet broker forecasts suggest a more modest yield of around 4.2%, highlighting the uncertainty surrounding those estimates.
Mixed messages on growth
So what about the shares? Citigroup has a 165p price target, down 21% on today’s figure, combined with a Sell rating. It’s concerned by the pension scheme, funding rules and pressure in the fixed-line phone market. Berenberg, by contrast, has set an optimistic 300p target, up 42% on today, citing potential for stronger dividends and benefits from changes to Openreach regulation.
I’m impressed by Kirkby’s progress, and BT could become a stronger income investment if cash flow improves as promised. But debt, pension obligations and relentless broadband competition from smaller alt-net rivals remain serious concerns.
I wouldn’t bank on the most optimistic dividend forecasts just yet. The shares offer potential and are worth considering, but I can see simpler and safer ways to find that combination of growth and income today…
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
